The Role of R&D in Entrepreneurial Finance and Performance
43 Pages Posted: 18 Oct 2013 Last revised: 13 Oct 2014
Date Written: March 7, 2014
We extend theories of the firm to the entrepreneurial finance setting and argue that R&D-focused start-up firms will have a greater likelihood of financing themselves with equity rather than debt. We argue that mechanisms that reduce information asymmetry, including owner work experience and financier reputation, will increase the probability of funding with more debt. We also argue that startups that correctly align their financing mix to their R&D focus will perform better than firms that are misaligned. We study these ideas using a large nationally representative dataset on start-up firms in the United States.
Keywords: entrepreneurship, entrepreneurial finance, information asymmetry, firm performance, research and development, transaction cost economics
JEL Classification: D23, G3, M13, O32
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